The government is planning to accredit more lenders to offer loans to SMEs under the Enterprise Finance Guarantee scheme.
In order to encourage smaller lenders to sign up for the scheme, the Business Department is increasing the amount it insures against default, from the current 9.75% to 15% on the first £1 million of every loan.
Last week, the Bank of England said that small business lending was falling at a faster rate than ever. In May, small business lending fell by 4.9% compared to May 2010. The number of loans through the EFG scheme has also dropped dramatically. EFG began in January 2009 and in May that year 647 loans were paid to a total value of £65.3 million. In May 2010, 453 loans were taken out, worth £41.9 million and in May this year that had dropped to 291 loans, valued at £30.2 million.
A spokesperson from the Business Department explained that the 2009 peak in EFG lending happened at the height of the economic downturn. Economic conditions have rebounded since then and small firms are able to get normal business loans.
Barclays bank is one high street institutions that is lending to small businesses. In the first half of 2011, the bank has made £20 billion available to smaller enterprises and is on course to lend £40 billion by the end of the year.
Barclays is already more than half way to meeting its Project Merlin targets but it is believed that others in the gang of five will fall short.
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Image: Property market by alancleaver_2000
